Newport News airport: Large gaps in People Express money trail

Millions of dollars that People Express Airlines spent — and the Peninsula Airport Commission provided — remain unaccounted for almost three years after the airline went out of business.

The founder of People Express says he is working with investigators to gather specific numbers on how the airline spent $4.5 million of a loan that Newport News/Williamsburg International Airport repaid with taxpayer funds.

"What I can tell you is lease fees ... for the aircraft, airport, ground handling, fuel deposits and hiring 100 people did eat up the bulk of the loan," People Express founder Michael Morisi said in an email response to questions from the Daily Press.

"And yes, by November 2014 we were out of money," he said.

Records assembled by state auditors, who investigated the airport commission payment of the People Express loan after the Daily Press reported it earlier this year, suggest where some of the money went — or should have gone.

"We tried to reconstruct the finances, but without access to the PEX (People Express) books and records, it was not possible without making unreasonable assumptions," said Bradley Gales, director of the Virginia Department of Transportation Assurance and Compliance Office. Gales led the state audit team, which issued a report criticizing the airport commission for a lack of proper due diligence, conflicts of interest and secrecy in arranging the deal.

What's known is this:

When TowneBank decided, after a presentation by People Express CEO Jeff Erickson, then-airport Executive Director Ken Spirito and then-Newport News City Manager Jim Bourey, to provide a $5 million line of credit guaranteed by the airport, People Express had just $148,000 in its bank account.

The bank's loan summary, prepared a few days after the meeting, was based on projections that People Express would need to pay $165,000 to stay current with the debt that year and would have to do so while expenses exceeded revenue by $4.4 million.

The day the agreement for the $5 million line of credit was signed, People Express drew almost $3.6 million.

It quickly repaid a $565,000 loan it had received from the commission, and $233,694 in back taxes to the IRS, $72,000 of which dated to 2012 and were owed in part for additional Medicare taxes for employees earning more than $200,000 a year, records compiled by the state auditors show.

That left a balance of about $2.75 million, before any other spending in June. State auditors tracked no other payments by People Express in June, although a Daily Press survey found the company paid $108,800 to the Pittsburgh airport as an advance deposit for landing fees, gate access and terminal rent.

Spirito has said the money drawn on the line of credit in June 2014 went to pay such deposits at several airports. Morisi said People Express paid the deposits directly to the airports, fueling and ground handling firms it operated with but made the payments "under Vision's name."

Vision Airlines is the Las Vegas-based firm that actually operated People Express' planes.

The airport paid Vision $650,000 to cover costs of starting service, using part of a federal grant.

In addition, People Express' agreement with Vision called for it to make an immediate, nonrefundable deposit of $500,000 as a condition of starting service.

Vision started its service for People Express on June 30, 2014. People Express told the airport commission it collected $1.3 million in revenue during the month that followed, according to a report it made to the airport and that Spirito forwarded to Bourey.

During July, People Express drew another $1.2 million on the TowneBank line of credit. That means that by the end of the month, People Express had received a total of $5.3 million from ticket sales and the line of credit.

People Express reported to the airport that it had incurred expenses of $3.2 million during July – leaving about $2 million not accounted for.

People Express' contract with Vision required it to pay the Nevada firm at least $1.1 million for July, with payment due in mid-August. Airport officials did not see that contract until several weeks after agreeing to guarantee People Express' borrowing.

In early September, Vision notified People Express that it had defaulted on the agreement and owed the Nevada firm $1.5 million.

Morisi did not respond to a question about whether either the deposit or the July payment was made.

State auditors found even less information for People Express operations in August and the early weeks of September, when an accident with a truck at the Newport News airport led it to stop service.

What auditors did find was a report that ticket sales for two of the seven cities People Express served from Newport News – Newark, N.J., and Boston — amounted to $1 million in August. Oddly, the report said expenses for those services in August were exactly the same, to the dollar, as the July total. In July, service to those two cities accounted for about 60 percent of People Express' reported revenue and more than half of its incurred expense.

People Express' agreement with Vision called for it to pay at least $1.625 million for August. Vision filed its notice that it was owed $1.5 million a week before the due date for this payment.

People Express drew the last of its line of credit, $252,030 on Aug. 29.

Morisi did not respond to questions about People Express' operating results in August and September, and auditors found no information about expenses the company incurred or revenue it collected beyond an airport report that ticket revenue for the Newark and Boston service for September was just $543,000 while expenses were $1.2 million.

Under its agreement with Vision, People Express owed that operator $1.9 million for September.

State auditors reported no information on bills People Express actually paid or balance sheet information about money owed.

Vision's financial filings with the U.S. Department of Transportation show a $4.3 million increase in money it was owed by the end of the quarter in which it operated the People Express service. It also shows a $2.9 million increase in revenue booked, which does not necessarily mean it was collected.

The filings offer no details.

Vision's telephone has been disconnected. Its website has disappeared. It stopped making the financial reports federal regulators require of airlines in the fall of 2016.